<PAGE>

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington D. C. 20549

                                ----------------

                                    FORM 10-Q

(Mark one)

 [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                  For the quarterly period ended March 31, 2002

                                       OR

 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                For the transition period from to _____ to _____.


                         Commission File Number 0-19640

                              -------------------

                               VERTEL CORPORATION
             (Exact name of Registrant as specified in its charter)

            California                                        95-3948704
(State or other jurisdiction of                            (I.R.S. Employer
 incorporation or organization)                           Identification No.)

21300 Victory Boulevard, Suite 700, Woodland Hills, California        91367
(Address of principal executive offices)                            (Zip code)

                                 (818) 227-1400
              (Registrant's telephone number, including area code)



Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period as the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days.

                                    Yes  X   No
                                        ---     ---

As of May 10, 2002 there were 33,817,486 shares of common stock outstanding.

================================================================================


<PAGE>

                          PART I. FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

                               VERTEL CORPORATION

                           CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                                   March 31,            December 31,
                        ASSETS                                                       2002                    2001
                                                                                  ----------            ------------
<S>                                                                               <C>                  <C>
Current assets:
     Cash and cash equivalents ................................................     $  3,588               $  2,851
     Trade accounts receivable (net of allowances of $461 as of
           March 31, 2002 and $487 as of December 31, 2001) ...................        2,262                  2,316
     Prepaid expenses and other current assets ................................          711                    221
                                                                                    --------               --------
          Total current assets ................................................        6,561                  5,388

Property and equipment ........................................................          328                    456
Investments ...................................................................           46                     75
Goodwill, net .................................................................        8,546                  8,546
Other assets ..................................................................          424                    365
                                                                                    --------               --------
                                                                                    $ 15,905               $ 14,830
                                                                                    ========               ========
                LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable .........................................................     $    488               $    439
     Accrued wages and related liabilities ....................................          998                  1,024
     Accrued restructuring expenses ...........................................           35                    145
     Accrued taxes payable ....................................................          391                    374
     Other accrued liabilities ................................................        1,105                  1,340
     Accrued acquisition liabilities ..........................................           30                     31
     Deferred revenue .........................................................        1,413                    933
     Warrant obligation .......................................................          269                     --
                                                                                    --------               --------
           Total current liabilities ..........................................        4,729                  4,286
                                                                                    --------               --------

Long-term liabilities .........................................................          826                     --
                                                                                    --------               --------
          Total liabilities ...................................................        5,555                  4,286
                                                                                    --------               --------
Shareholders' equity:
     Preferred stock, par value $0.01, 2,000,000 shares authorized;
          none issued and outstanding
     Common stock, par value $0.01, 100,000,000 shares authorized;
          shares issued and outstanding: 2002, 33,261,969;
                  2001, 32,891,689 ............................................          333                    329
     Additional paid-in capital ...............................................       95,350                 93,105
     Accumulated deficit ......................................................      (85,045)               (82,640)
     Accumulated other comprehensive loss .....................................         (288)                  (250)
                                                                                    --------               --------
          Total shareholders' equity ..........................................       10,350                 10,544
                                                                                    --------               --------
                                                                                    $ 15,905               $ 14,830
                                                                                    ========               ========
</TABLE>
          See accompanying notes to consolidated financial statements.

                                       2

<PAGE>

                               VERTEL CORPORATION

          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                                                  Three Month Period Ended
                                                                                  ------------------------
                                                                                March 31,             March 31,
                                                                                  2002                  2001
                                                                             -------------          -------------
<S>                                                                          <C>                    <C>
Net revenues:
    License ...................................................................  $ 1,259              $   1,336
    Service and other .........................................................      743                  1,262
                                                                                --------              ---------
          Net revenues ........................................................    2,002                  2,598
                                                                                --------              ---------
Cost of revenues:
    License ...................................................................       39                    174
    Service and other .........................................................    1,039                  1,772
                                                                                --------              ---------
          Total cost of revenues ..............................................    1,078                  1,946
                                                                                --------              ---------

Gross profit ..................................................................      924                    652
                                                                                --------              ---------

Operating expenses:
    Research and development ..................................................    1,289                    860
    Sales and marketing .......................................................    1,273                  1,782
    General and administrative ................................................      791                    883
    Goodwill amortization .....................................................       --                    238
                                                                                --------              ---------
         Total operating expenses .............................................    3,353                  3,763
                                                                                --------              ---------

Operating loss ................................................................   (2,429)                (3,111)
Other income, net .............................................................       47                    174
                                                                                --------              ---------

Loss before provision for income taxes ........................................   (2,382)                (2,937)
Income tax (provision) benefit ................................................      (23)                    86
                                                                                --------              ---------
Net loss ......................................................................   (2,405)                (2,851)
Other comprehensive loss ......................................................      (38)                  (173)
                                                                                --------              ---------
Comprehensive loss ............................................................ $ (2,443)             $  (3,024)
                                                                                ========              =========


Basic and diluted net loss per common share ...................................   ($0.07)                ($0.10)
                                                                                ========              =========
Weighted average shares outstanding used in
      net loss per common share calculations - basic and diluted ..............   33,130                 28,354

</TABLE>

          See accompanying notes to consolidated financial statements.

                                       3

<PAGE>

                               VERTEL CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                                         Three Month Period Ended
                                                                                         ------------------------
                                                                                      March 31,              March 31,
                                                                                        2002                    2001
                                                                                    ------------           ------------
<S>                                                                                <C>                   <C>
Cash flows from operating activities:
  Net loss .......................................................................   $(2,405)                $(2,851)
  Adjustments to reconcile net loss to net cash used for operating activities:
    Depreciation and amortization ................................................       146                     567
    Reserve for returns and bad debts ............................................       (26)                      7
    Change in fair value of Warrant obligation ...................................      (160)                     --
    Non-cash interest expense ....................................................       155                      --
    Changes in operating assets and liabilities ..................................      (283)                   (386)
                                                                                     -------                 -------

    Net cash used for operating activities .......................................    (2,573)                 (2,663)
                                                                                     -------                 -------
Cash flows from investing activities:
    Net purchases of short-term investments ......................................        --                  (1,904)
    Purchases of property and equipment ..........................................       (22)                   (109)
    Changes in other assets ......................................................       (59)                     86
                                                                                     -------                 -------

    Net cash used for investing activities .......................................       (81)                 (1,927)
                                                                                     -------                 -------
Cash flows from financing activities:
    Proceeds from issuance of common stock .......................................        --                      84
    Proceeds from sale of convertible promissory note and Warrant ................     3,395                      --
                                                                                     -------                 -------

    Net cash provided by financing activities ....................................     3,395                      84
                                                                                     -------                 -------

Effect of exchange rate changes on cash ..........................................        (4)                      8
                                                                                     -------                 -------

Net increase (decrease) in cash and cash equivalents .............................       737                  (4,498)

Cash and cash equivalents, beginning of period ...................................     2,851                  10,827
                                                                                     -------                 -------

Cash and cash equivalents, end of period .........................................   $ 3,588                 $ 6,329
                                                                                     =======                 =======
</TABLE>
          See accompanying notes to consolidated financial statements.

                                       4

<PAGE>

                               VERTEL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   General

     The consolidated financial statements include the accounts of Vertel
Corporation and its subsidiaries (the "Company"). Intercompany balances and
transactions have been eliminated in consolidation. The interim consolidated
financial statements are unaudited. In the opinion of management, the interim
financial statements include all adjustments, consisting of only normal,
recurring adjustments, necessary for a fair presentation of the Company's
financial position, results of operations and cash flows.

     We suggest that our consolidated financial statements and the accompanying
notes be read in conjunction with the audited consolidated financial statements
and the accompanying notes for the year ended December 31, 2001 included in the
Company's Annual Report on Form 10-K. The results of operations for the three
month period ended March 31, 2002 are not necessarily indicative of results that
may be expected for the full year.

     On February 22, 2002, we filed a Current Report on Form 8-K in connection
with our announcement that we had received notice from The Nasdaq Stock Market,
Inc. (Nasdaq) that we had not met, for the last 30 trading days, the minimum bid
price of $1.00 and that we intended to transition to The Nasdaq SmallCap Market.
We have applied for listing with the The Nasdaq SmallCap Market and our
application is bing processed. There can be no assurance that our application to
be listed on The Nasdaq SmallCap Market will be accepted or, if it is accepted
that we will satisfy the requirements for continued listing on The Nasdaq
SmallCap Market. If we are unsuccessful, our common stock will be delisted. We
will not be notified of the delisting until it becomes effective. If our common
stock is delisted from The Nasdaq National Market and we are unable to gain
listing on The Nasdaq SmallCap Market, we may be unable to have our common stock
listed or quoted on any other organized market. Even if our common stock is
quoted or listed on another organized market, an active trading market may not
develop.

     We have reported operating losses from continuing operations for each of
the most recent five fiscal years. For the quarter ended March 31, 2002 we
reported operating losses of $2,429,000 and negative cash flows from operations
of $2,573,000. As of March 31, 2002 we had an accumulated deficit of $85,045,000
and working capital of $1,832,000, which includes cash and cash equivalents
amounting to $3,588,000. These conditions raise substantial doubt about our
ability to continue as a going concern and, therefore, we may be unable to
realize our assets and discharge our liabilities in the normal course of
business. Our plans to overcome these conditions include increasing revenues,
reducing expenses and raising additional equity capital. In the first quarter of
2002, we added additional sales personnel with the intention of increasing
revenues. In the fourth quarter of 2001 we reduced the number of employees by
approximately 25% and implemented several cost reduction initiatives. This
reduced our expenses in the first quarter of 2002 versus the third quarter of
2001 by approximately $800,000. In addition, we further reduced the number of
employees by approximately 15% in May of 2002. On January 3, 2002, we received
proceeds of $3,395,000 from the sale of a convertible promissory note and
Warrant (See Note 2). Although we plan to increase revenues and continue
reducing expenses, we believe we will require additional financing early in the
third quarter of 2002 in order to fund planned operations for the remainder of
2002. We continue to seek short term financing and a longer term financing
solution. We cannot assure that we will be able to increase our revenues, or
that our expense reduction programs will be successful, or that additional
financing will be available to us, or, if available, on terms that will be
satisfactory to us. If we are not successful in reducing our expenses or raising
sufficient additional capital, or if we do not achieve revenues at levels
sufficient to generate operating income, we will not be able to continue as a
going concern. Our financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts nor to
amounts and classification of liabilities that may be necessary should we be
unable to continue as a going concern.

2.   Financing Transaction

     On January 3, 2002, in connection with a Note and Warrant Purchase
Agreement with SDS Merchant Fund, L.P. (SDS), we received net proceeds after
payment of approximately $3,395,000, net of a $105,000 commission paid to SDS,
from the sale of a $3,500,000 convertible promissory note (the "Note") to SDS
and issued SDS a Warrant initially exercisable into 800,000 shares of our common
stock at an initial exercise price of $0.9988 per share (the "Warrant"). The
total costs incurred in connection with the financing transaction amounted to
$216,160, excluding the SDS commission of $105,000, and consist of professional
fees and SEC registration fees. These costs are being amortized on a
straight-line basis to expense over the 36-month term of the Note.

     The conversion price of the Note fluctuates and is determined by
multiplying the applicable discount percentage by the average per share market
value for the five trading days having the lowest per share market value during
the fifteen trading days immediately prior to the conversion date. The initial
discount percentage is 7%. The discount percentage can be adjusted in 2%
increments (i.e. to 5%) for every $1,000,000 that the sum of our cash, cash
equivalents and short-term investments exceeds $3,008,000 on the date that the
discount percentage is being applied. Similarly, the discount percentage can be
adjusted (i.e. to 9%) for every $1,000,000 that the sum of our cash, cash
equivalents and short-term investments is below $3,008,000. The $3,008,000
target cash amount does not include the proceeds of the Note or the Warrant. The
conversion price of the Note is capped at $1.75 per share of common stock.

     The Warrant exercise price may be adjusted on August 31, 2002 and February
28, 2003 to an amount equal to 120% of the per share market value for the five
trading days having the lowest per share market value during the fifteen trading
days immediately prior to such adjustment date, provided that such amounts do
not exceed the initial exercise price. On January 3,

                                       5

<PAGE>

                               VERTEL CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

2002, the transaction commitment date, the fair value of the Warrant, which
expires in five years, was estimated at $505,000 using the Black-Scholes
option-pricing model and the following assumptions; a risk-free interest rate of
4.4%, expected volatility of 199%, and expected dividends of zero.

     In accordance with Accounting Principles Board Opinion No. 14, "Accounting
for Convertible Debt and Debt Issued with Stock Purchase Warrants," we allocated
the net proceeds of $3,395,000 to the Note and the Warrant based their relative
fair values of $3,500,000 for the Note and $505,000 for the Warrant. A discount
on the Note of $533,084 and a discount on the Warrant of $76,916 resulted from
the fair value allocation. On January 3, 2002, the transaction commitment date,
the Note was convertible into 7,777,778 shares of our common stock with a fair
value of $5,055,556, or $0.65 per share, based on the closing market price of
our common stock on The Nasdaq National Market. We determined that the
conversion feature of the Note was beneficial to its holder in the amount of
$2,088,600, which is equal to the difference between the fair value of the
shares into which the Note was convertible of $5,055,556 and the $2,966,916 of
net proceeds allocated to the Note in the manner previously described. The
principal amount of the Note of $3,500,000 was recorded as a long-term
liability, net of a $2,621,684 discount, which consists of the $533,084 discount
resulting from the fair value allocation and the $2,088,600 discount resulting
from the beneficial conversion feature. The beneficial conversion feature of
$2,088,600 was also credited to additional paid-in capital. The total discount
on the Note of $2,621,684, which is being amortized to interest expense over the
36-month term of the Note using the effective interest method, may be subject to
downward adjustments to the extent partial conversions of the Note occur. These
adjustments, if required, would reduce the carrying value of the discount and
increase additional paid-in capital. During the quarter ended March 31, 2002,
$160,000 of the Note principal was converted, along with approximately $5,600 of
accrued interest, into 370,280 shares of our common stock. The amount of the
adjustment required to be made to the carrying value of the discount on the Note
was not significant.

     We are required by the listing rules of Nasdaq to obtain shareholder
approval before issuing securities representing 20% or more of our outstanding
listed securities. It is possible that while the Note and the Warrant are
outstanding, the market price of our common stock could decrease to a price at
which the holder of the Note and Warrant is entitled to convert the Note into
and exercise the Warrant for a number of shares that represents 20% or more of
our then-outstanding common stock. As of and subsequent to March 31, 2002 the
market price of our common stock has been such that would result in the issuance
of more than 20% of our outstanding common stock if the holder of the Note and
Warrant desires to convert all of the Note into and exercise the Warrant. If the
Note and Warrant holder does express its desire to convert and exercise the Note
and Warrant, we have agreed that we will use our best efforts to hold a special
shareholders meeting to seek shareholder approval of the issuance of the shares
of common stock. Failure to obtain such shareholder approval could result in our
being required to pay cash to the holder of the Note and Warrant in an amount
equal to the fair market value of the shares exceeding 20% of our
then-outstanding common stock. Failure to obtain such shareholder approval could
also cause our default under our agreement with the holder of the Note and
Warrant. If we default on that agreement the outstanding balance under the Note
will be accelerated and an indeterminate amount of damages could be assessed
against us for each day that we are in default.

     Emerging Issues Task Force (EITF) No. 00-19, "Accounting for Derivative
Financial Instruments Index to, and Potentially Settled in, a Company's Own
Stock", requires that we initially classify the Warrant as a liability since the
foregoing provisions of our agreement with the holder of the Note and Warrant
could require us to pay cash to settle the Warrant contract. Accordingly, we
recorded the fair value of the Warrant of $428,084, net of the $76,916 discount
arising from the allocation of the net proceeds to the Note and Warrant as
previously described, as a Warrant obligation on January 3, 2002, the
transaction commitment date. EITF No. 00-19 requires that we adjust the carrying
value of the Warrant obligation to its fair value on each reporting date.
As of March 31, 2002, the fair value of the Warrant was estimated at $269,000
using the Black-Scholes option-pricing model and the following assumptions; a
risk-free interest rate of 4.4%, expected volatility of 199%, and expected
dividends of zero. The decrease in the Warrant fair value from January 3, 2002
to March 31, 2002 of approximately $160,000 was reflected as other income.

     A significant component of the Black-Scholes model is the fair market value
per share of our common stock. If the fair market value of our common stock
increases the fair value of the Warrant obligation would likely increase,
resulting in a charge to other expense. If the fair market value of our common
stock decreases the fair value of the Warrant obligation would likely decrease,
resulting in other income, as was the case for the first quarter of 2002. For
example, if the fair market value of our common stock on March 31, 2002 was
$1.00 per share, the fair value of the Warrant obligation determined using the
Black-Scholes model, assuming all other variables remain constant, would
hypothetically have been approximately $781,000, resulting in a charge of
approximately $353,000 to other expense for the first quarter of 2002.
Conversely, if the fair market value of our common stock on March 31, 2002 was
$0.20 per share, the fair value of the Warrant obligation determined using the
Black-Scholes Model, assuming all other variables remain constant, would
hypothetically have been approximately $152,000, resulting in other income of
approximately $276,000 for the first quarter of 2002. Given the volatility of
our stock price, we cannot predict the impact fluctuations in the fair market
value of our stock price may have on our consolidated statement of operations
for any future period.

     EITF No. 00-19 requires that we evaluate the classification of the Warrant
as a liability as of each reporting date. To the extent the potential for us to
be required to pay cash to settle the Warrant contract no longer exists, we may
be required to reclassify the carrying value of the Warrant liability to equity.

                                       6

<PAGE>

                               VERTEL CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

3.   Statement of Cash Flows

     Decreases in operating cash flows arising from changes in assets and
liabilities consist of the following (in thousands):


                                                      Three Month Period Ended
                                                      --------------------------
                                                       March 31,       March 31,
                                                        2002             2001
                                                      --------         --------

    Trade accounts receivable ......................    $   80          $  267
    Prepaid expenses and other current assets ......      (490)           (403)
    Accounts payable ...............................        49            (169)
    Accrued wages and related liabilities ..........       (26)            (35)
    Cash payments for restructuring expenses .......      (110)             --
    Accrued taxes payable ..........................        17             (99)
    Other accrued liabilities ......................      (283)            (93)
    Deferred revenue ...............................       480             146
                                                        ------          ------
                                                        $ (283)         $ (386)
                                                        ======          ======


4.   Segment Reporting

     Our chief operating decision maker, as defined by Statement of Financial
Accounting Standard (SFAS) No. 131, "Disclosures about Segments of an Enterprise
and Related Information," is our chief executive officer. On October 11, 2001,
we announced the hiring of a new chief executive officer. In the fourth quarter
of 2001 our new chief executive officer restructured our operations to reduce
operating costs, resulting in a 25% reduction of our workforce from the level at
the end of the third quarter of 2001. Our new chief executive officer makes
decisions about resource allocation based on the organization as a whole.
Accordingly, we now operate in one reporting segment. Prior to the first quarter
of 2002, decisions made by our chief executive officer about allocating
resources, which consist primarily of personnel, and compensation of key
employees were made based on the operating results of two principal segments,
license and service. Since we now operate in one reportable segment, restatement
of prior period information is not necessary.

5.   Recent Accounting Pronouncements

     In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 requires that certain acquired intangible
assets in a business combination be recognized as assets separate from goodwill.
The application of SFAS No. 141 did not affect any of our previously reported
amounts included in goodwill. SFAS No. 142 eliminates goodwill amortization and
requires an evaluation of goodwill for impairment (at the reporting unit level)
upon adoption, as well as subsequent evaluations on an annual basis, and more
frequently if circumstances indicate a possible impairment. This impairment test
is comprised of two steps. The initial step is designed to identify potential
goodwill impairment by comparing an estimate of the fair value of the applicable
reporting unit to its carrying value, including goodwill. If the carrying value
exceeds fair value, a second step is performed, which compares the implied fair
value of the applicable reporting unit's goodwill with the carrying amount of
that goodwill, to measure the amount of goodwill impairment, if any.

     As described in Note 4, we currently operate in one reportable segment,
which is also our only reporting unit for purposes of SFAS No. 142. Since we
have only one reporting unit, all of our goodwill has been assigned to our
enterprise as a whole. We estimated the fair value of our enterprise upon
adoption of SFAS No. 142 on January 1, 2002 to be its market capitalization,
based on the closing share prices quoted on The Nasdaq National Market. Since
our market capitalization of approximately $22,038,000 as of January 1, 2002
exceeded the $10,544,000 carrying value of our enterprise on that date we
concluded goodwill did not appear impaired and that the second step of the
impairment test prescribed by SFAS No. 142 was not required to be performed.

                                       7

<PAGE>

                               VERTEL CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

     SFAS No. 142 requires, however, we test goodwill for impairment more
frequently if circumstances indicate a possible impairment. During the quarter
ended March 31, 2002, the telecommunications sector continued to be adversely
impacted by the worst economic environment the U.S. economy has experienced in
the last decade. The market price of our common stock, and consequently our
market capitalization, has declined steadily during the quarter ended March 31,
2002. Although our market capitalization approximates our carrying value as of
March 31, 2002, it has subsequently declined to approximately $6,985,000 as of
May 14, 2002. We believe these circumstances indicate goodwill might be
impaired. At the time of this filing we have not yet completed the second step
of the impairment test prescribed by SFAS No. 142, however, any resulting
impairment charge could be significant.

     As of March 31, 2002, goodwill, net of accumulated amortization of
$3,515,000, amounted to $8,546,000, or approximately 54% of our total assets of
$15,905,000. We recognized $238,000 of goodwill amortization during the quarter
ended March 31, 2001. Had we not recorded goodwill amortization during the
quarter ended March 31, 2001, as would have been the case if the provisions of
SFAS No. 142 had been in effect, pro forma net loss would have been $2,613,000
and pro forma basic and diluted net loss per common share would have been $0.09.

     In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations ". SFAS No. 143 addresses the financial accounting and
reporting issues related to the obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SFAS No.
143 is effective for financial statements issued for fiscal years beginning
after June 15, 2002. The Company will adopt SFAS No. 143 effective January 1,
2003. The adoption of SFAS No. 143 is not expected to have a significant impact
on the consolidated financial position or results of operations.

     In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses the
financial accounting and reporting issues for the impairment or disposal of
long-lived assets. This statement supersedes SFAS No. 121 but retains the
fundamental provisions for (a) recognition/measurement of impairment of
long-lived assets to be held and used and (b) measurement of long-lived assets
to be disposed of by sales. The Company adopted SFAS No. 144 effective January
1, 2002. The adoption of SFAS No. 144 did not have a significant impact on the
consolidated financial position or results of operations.


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

FORWARD-LOOKING INFORMATION AND SAFE HARBOR STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.

     This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. In addition, forward-looking statements may be made orally
or in press releases, conferences, reports, on our web site or otherwise, in the
future by us or on our behalf. Statements that are not historical are
forward-looking. When used by or on our behalf, the words "expect,"
"anticipate," "estimate," "believe," "intend" and similar expressions generally
identify forward-looking statements.

     Forward-looking statements involve risks and uncertainties. These
uncertainties include factors that affect all businesses operating in a global
market, as well as matters specific to us and the markets we serve. Particular
risks and uncertainties facing us at the present include our ability to raise
additional capital, in particular the ability to secure additional financing to
fund our operations for the remainder of 2002; the financial uncertainties
associated with continuing losses; our ability, including the financial ability,
to continue to invest in research and development necessary for the development
of new and existing products that are required to increase revenues; the timely
and successful development of existing and new markets; the severe impact that
the slowdown in the U.S. economy has had on the telecommunications industry,
forcing a number of service providers to cease operations, which has adversely
impacted the revenues of our equipment manufacturer customers and, therefore,
our revenues; the fact that some of our products are relatively new and,
although we see developing

                                       8

<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

market interest, it is difficult to predict sales of our newer products and the
market may or may not ultimately adopt these technologies; the fact that our
sales cycle is long for our products, making initial license sales and future
royalties difficult to forecast; additional difficulty in predicting royalty
revenue because that revenue is dependent on successful development and
deployment by our customers of their products containing our software;
fluctuation from quarter to quarter in revenue from our professional service
unit as a result of a limited number of large consulting contracts; loss of key
customer, partner or alliance relationships and the possibility that we may not
be able to replace the loss of a significant customer; the dependence on a
limited number of customers for a significant portion of our quarterly license
revenues; size and timing of license fees closed during the quarter which may
result in large swings in quarterly operating results and the likely continued
significant percentage of quarterly revenues recorded in the last month of the
quarter, frequently in the last weeks or even days of a quarter, which further
adds to the difficulty of forecasting, and our ability to control expenditures
at a level consistent with revenues.

     Additionally, more general risk factors include the possible development
and introduction of competitive products and new and alternative technologies by
our competitors; the increasing sales and marketing costs of attracting new and
retaining existing customers; pricing, currency and exchange risks; governmental
and regulatory developments affecting us and our customers; the ability to
identify, conclude, and integrate acquisitions on a timely basis; the ability to
attract and/or retain essential technical or other personnel; political and
economic uncertainties associated with conducting business on a worldwide basis.
Readers are cautioned not to place undue reliance on any forward-looking
statement and to recognize that the statements are not predictions of actual
future results. Actual results could differ materially from those anticipated in
the forward-looking statements and from historical results, due to the risks and
uncertainties referred to above, as well as others not now anticipated. Further
risks inherent in our business are listed under "Risk Factors" in Part I, Item I
of Vertel's Annual Report on Form 10-K for the fiscal year ended December 31,
2001.

     The foregoing statements and risk factors are not exclusive and further
information concerning us and our business, including factors that potentially
materially affect our financial results, may emerge from time to time. It is not
possible for management to predict all risk factors or to assess the impact of
such risk factors on our business. We undertake no obligation to revise or
publicly release the results of any revision to the forward-looking statements.

Background

     We are a telecommunications software and services company. We derive
revenue primarily from software license fees, royalties and services, including
professional services, technical support and maintenance. Software license fees
consist primarily of licenses of our software products. Our software license
agreements generally do not provide for a right of return. We maintain reserves
for returns and potential credit losses, neither of which has had a material
effect on our results of operations or financial condition through March 31,
2002.

     Pursuant to our license agreements, licensees may distribute their products
with binary or embedded versions of our software. Royalty revenues become due
upon shipment by the licensee of their products containing our software or when
we grant run-time licenses to our licensees. Due to the development times
required for licensees to design and ship products containing our software, we
generally do not receive royalties or run-time revenues from licensees shipments
of such products for at least three quarters from the date we initially ship our
software.

     We separately offer professional services, including system design and
engineering, custom application development, source code portation, conformance
testing and certification and application development. These services are
typically based on a detailed statement of work. Professional services revenue
varies according to the size, timing and complexity of the project and is
typically billed based on satisfaction of certain milestones or on a per day
fee. In certain cases, customers reimburse us for non-recurring engineering
efforts.

     Our technical support services consist of product support and maintenance,
training and on-site consulting. Product support and maintenance fees have
constituted the majority of technical support and service revenue.

                                       9

<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

     We sell products and services primarily through a direct sales force in the
United States and abroad and, in certain sales territories, through third party
agents. Our customers include telecommunications service providers and their
customers, network equipment manufacturers, independent software developers and
software platform vendors.

     Starting in 2000, and continuing through the first quarter of 2002, the
economic environment in the U.S. deteriorated and has remained weak. The
telecommunications sector has declined more significantly than the overall U.S.
economy and telecommunications companies in Europe, and to a lesser extent in
Asia, have also experienced downturns. These conditions adversely impacted us
starting in the second half of 2000 and have continued to date. During this
period a number of telecommunications service providers ceased operations or
sought bankruptcy protection, which in turn impacted telecommunication equipment
manufacturers, and their revenues generally declined. Equipment manufacturers
have historically comprised a significant portion of our customer base, and many
of our customers experienced significant revenue declines in the second half of
2000 that have continued. As a result, in 2000, 2001 and 2002, many of our major
customers have announced multiple staff layoffs, closed or sold business units,
and reduced purchases of development software and consulting services. Although
our first quarter 2002 revenues improved compared to the fourth quarter of 2001,
there is no industry consensus as to when the equipment manufacturers will see
an economic recovery and, therefore, when they will acquire new development
software, deploy products that include our software or need additional
consulting services revenues. However, we believe that both license and service
revenues will continue to increase across 2002 as the economic conditions
affecting the telecommunications sector, and revenues to equipment manufacturers
improve. In addition, we believe that our newer product offerings, combined with
our professional service competencies, can expand our customer base and enable
us to enter additional markets such as network data mediation.

     As a consequence of the downturn in the telecommunications sector, our
revenues, including revenues from royalties based on shipments by our customers
of their products containing our software, have declined significantly when
compared to 1999. Our reduced revenues increased both our losses and our
negative cash flow. As a consequence, we must increase our revenues, reduce
costs, and/or secure additional funding in order to continue operating as a
going concern through the remainder of 2002.

Critical Accounting Policies and Estimates

     The Securities and Exchange Commission (SEC) recently issued disclosure
guidance for "critical accounting policies." The SEC defines "critical
accounting policies" as those that require application of management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain and may
change in subsequent periods.

     Our significant accounting policies are described in Note 2 of the Notes to
Consolidated Financial Statements in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2001. Not all of these significant accounting
policies require management to make difficult, subjective or complex judgments
or estimates. However, we believe the following accounting policies, which
affect our more significant judgments and estimates used in the preparation of
our consolidated financial statements, could be deemed to be critical within the
SEC definition.

     Allowance for doubtful accounts receivable. We maintain allowances for
doubtful accounts for estimated losses resulting from the inability of our
customers to make required payments. If the financial condition of our customers
were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.

     Goodwill. As of March 31, 2002, goodwill, net of accumulated amortization
of $3,515,000, amounted to $8,546,000, or approximately 54% of our total assets
of $15,905,000. This goodwill was recorded because the fair value of the
consideration we exchanged, which consisted primarily of cash and shares of our
common stock, to acquire Expersoft in March 1999 and the assets of Trigon in May
2001 exceeded the fair value of the net assets acquired. Determining the fair
value of the assets acquired in connection with these acquisitions required us
to use our judgment and make estimates.

     In June 2001, the FASB issued FSAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that
certain acquired intangible assets in a business combination be recognized as
assets separatefrom goodwill. The application of SFAS No. 141 did not affect any
of our previously reported amounts included in goodwill. SFAS No. 142 eliminates
goodwill amortization and requires an evaluation of goodwill for impairment (at
the reporting unit level) upon adoption, as well as subsequent evaluations on an
annual basis, and more frequently if circumstances indicate a possible
impairment.

     In accordance with SFAS No. 142, we did not amortize goodwill during the
quarter ended March 31, 2002. However, we recognized $238,000 of goodwill
amortization during the quarter ended March 31, 2001. Had we not recorded this
amortization during the quarter-ended March 31, 2001, as would have been the
case if the provisions of SFAS No. 141 had been in effect, pro forma net loss
would have been $2,613,000 and pro forma basic and diluted net loss per common
share would have been $0.09.

     The impairment test required by SFAS No. 142 is comprised of two steps. The
initial step is designed to identify potential goodwill impairment by comparing
an estimate of the fair value of the applicable reporting unit to its carrying
value, including goodwill. If the carrying value exceeds fair value, a second
step is performed, which compares the implied fair value of the applicable
reporting unit's goodwill with the carrying amount of that goodwill, to measure
the amount of goodwill impairment, if any. As described in Note 4 of the Notes
to Consolidated Financial Statements included in this filing, we currently
operate in one reportable segment, which is also our only reporting unit for
purposes of SFAS No. 142. Since we have only one reporting unit, all of our
goodwill has been assigned to our enterprise as a whole. We estimated the fair
value of our enterprise upon adoption of SFAS No. 142 on January 1, 2002 to be
its market capitalization, based on the closing share price quoted on The Nasdaq
National Market. Since our market capitalization of approximately $22,038,000 as
of January 1, 2002 exceeded the $10,544,000 carrying value of our enterprise on
that date we concluded goodwill did not appear impaired and that the second step
of the impairment test prescribed by SFAS No. 142 was not required to be
performed.

     SFAS No. 142 requires, however, we test goodwill for impairment more
frequently if circumstances indicate a possible impairment. During the quarter
ended March 31, 2002, the telecommunications sector has continued to be
adversely impacted by the worst economic environment the U.S. economy has
experienced in the last decade. The market price of our common stock, and
consequently our market capitalization, has declined steadily during the quarter
ended March 31, 2002. Although our market capitalization approximates our
carrying value as of March 31, 2002, it has subsequently declined to
approximately $6,985,000 as of May 14, 2002. We believe these circumstances
indicate goodwill might be impaired in the second quarter of 2002. At the time
of this filing we have not yet completed the second step of the impairment test
prescribed by SFAS No. 142, however, any resulting impairment charge could be
significant.

     Warrant Obligation. On January 3, 2002, in connection with a Note and
Warrant Purchase Agreement with SDS, we issued SDS a warrant initially
exercisable into 800,000 share of our common stock at an initial exercise price
of $0.9988 per share. This financing transaction is more fully described in Note
3 of the Notes to Consolidated Financial Statements included in this filing.
EITF No. 00-19, "Accounting for Derivative Financial Instruments Index to, and
Potentially Settled in, a Company's Own Stock", requires that we initially
classify the warrant as a liability, since our agreement with SDS could require
us to net-cash settle the warrant, and that we adjust the carrying value of the
warrant obligation to its fair value on any given reporting date. The warrant
obligation was recorded on January 3, 2002, the financing transaction commitment
date, at its estimated fair value of $428,084, net of a $76,916 discount. As of
March 31, 2002, the fair value of the warrant was estimated at $269,000. The
decrease in the warrant fair value from January 3, 2002 to March 31, 2002 of
approximately $160,000 was reflected as other income.

     The fair value of the warrant has been determined using the Black-Scholes
option-pricing model. A significant component of the Black-Scholes model is the
fair market value per share of our common stock. If the fair market value of our
common stock increases the fair value of the warrant obligation would likely
increase, resulting in a charge to other expense. If the fair market value of
our common stock decreases the fair value of the warrant obligation would likely
decrease, resulting in other income, as was the case for the first quarter of
2002. For example, if the fair market value of our common stock on March 31,
2002 was $1.00 per share, the fair value of the warrant obligation determined
using the Black-Scholes model, assuming all other variables remain constant,
would hypothetically have been approximately $781,000, resulting in a charge of
approximately $353,000 to other expense for the first quarter of 2002.
Conversely, if the fair market value of our common stock on March 31, 2002 was
$0.20 per share, the fair value of the warrant obligation determined using the
Black-Scholes model, assuming all other variables remain constant, would
hypothetically have been approximately $152,000, resulting in other income of
approximately $276,000 for the first quarter of 2002. Given the volatility of
our stock price, we cannot predict the impact fluctuations in the fair market
value of our stock price may have on our consolidated statement of operations
for any future period.

                                       10

<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

     Income taxes. We have recorded a valuation allowance to reduce our deferred
tax assets to zero. If we are able to realize our deferred tax assets in the
future, an adjustment to the deferred tax asset would increase income in the
period such determination was made.

     Fixed price service contracts. Professional service contracts are typically
fixed price contracts that are completed in six months or less. We recognize
revenue as work progresses using the percentage of completion method, which
relies on estimates of total expected contract revenue and costs. We utilize
this method since reasonably dependable estimates of the revenue and costs
applicable to various stages of a contract can be made. Recognized revenues and
profit are subject to revisions as the contract progresses to completion.
Revisions in profit estimates are charged to income in the period in which the
facts that give rise to the revision become known. Revenues from non-recurring
engineering projects are also typically recognized on a percentage of completion
basis and follow the same principles as fixed price service contracts.

Results of Operations

     Net Revenues. Net revenues decreased 23% to $2,002,000 for the three months
ended March 31, 2002 (the "first quarter of 2002") compared to $2,598,000 for
the three months ended March 31, 2001 (the "first quarter of 2001"). The
decrease was primarily due to lower service revenues. Sequentially, however, net
revenues increased 75% from $1,145,000 for the three months ended December 31,
2001 (the "fourth quarter of 2001").

     Sales to customers outside the United States comprised approximately 40%
and 45% of net revenues in the first quarter of 2002 and 2001, respectively. We
have historically reported a high percentage of sales to such customers and
expect international sales to continue to be significant to our business. If the
dollar strengthens significantly, we may not be able to remain competitive, or
we may have to reduce our prices in international markets. In addition,
competition and price pressure have increased both domestically and
internationally for professional services projects as our competitors and
customers have increasingly subcontracted for engineering services from lower
cost countries such as China and India. As with domestic sales, our sales cycle
is usually lengthy and results in quarterly fluctuations between geographic
markets. Finally, any political or economic turmoil in our major Asian markets
(China, Japan and Korea) could impact future sales in the affected area.

     For the first quarter of 2002, sales to Alcatel and Samsung Electronics Co.
Ltd. comprised approximately 15% and 12% of net revenues, respectively. For the
first quarter ended March 31, 2001, sales to Alcatel, Kyoei Sangyo Co., Ltd. and
Nortel Networks Corporation comprised approximately 17%, 16% and 10% of net
revenues, respectively. No other single customer accounted for more than 10% of
net revenues in either the first quarter of 2002 or 2001. At March 31, 2002,
Tekview Co., Ltd., Alcatel, Samsung Electronics Co. Ltd and Green Hills
Software, Inc. comprised 18%, 17%, 13% and 10% of accounts receivable,
respectively. At March 31, 2001, Alcatel, Kyoei Sangyo Co., Ltd., Tekview Co.,
Ltd., and Nokia Corporation comprised 26%, 16%, 15% and 13% of accounts
receivable, respectively.

     License. License revenues consist primarily of license fees and royalties
derived from software products. We recognize revenue from the licensing of
software when persuasive evidence of an arrangement exists and the underlying
software products have been delivered. Most of our customer contracts contain
multiple software products or other elements, such as

                                       11

<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

maintenance and professional services. We typically deliver all software
products included in a multiple element contract shortly after the contract is
executed, with any service elements, such as maintenance or professional
services being provided to our customers over a period of time, generally less
than twelve months. We generally do not sell our software products separately
and therefore cannot readily determine their fair values. We do sell
maintenance, in the form of maintenance renewals, and professional services
separately and have vendor specific objective evidence (VSOE) of their fair
values. Therefore, most of our customer contracts are accounted for using the
residual method, which requires us to defer the fair value of undelivered
elements (e.g. maintenance or professional services) and recognize as revenue
the residual value of the customer contract. If a multiple element contract
includes an undelivered element for which we do not have VSOE of fair value, we
defer the entire contract value until either the element is delivered or VSOE of
its fair value is determined. If the undelivered element of a multiple element
contract is a service element, such as maintenance or professional services, and
we do not have VSOE of its fair value, we recognize the entire contract value as
revenue ratably over the term of the service element. We recognize royalty
revenues when reported by the customer for non-license key controlled
agreements, when the run-time license is shipped for license key controlled
agreements, or when a customer purchases royalties in advance on a
non-refundable, non-cancelable basis.

     Historically license revenues have accounted for a substantial portion of
total revenue. License revenues decreased 6% to $1,259,000 during the first
quarter of 2002 from $1,336,000 during the first quarter of 2001, as a result of
lower TMN license and royalty revenues. Although TMN revenues decreased by 44%
as compared to the first quarter of 2001, most of this reduction was offset by
increases in mediation and e*ORB license revenues. While we expect TMN royalties
to increase as the economy improves for telecommunication equipment
manufacturers, TMN revenues will continue to decline as a percentage of our
license revenues. Although TMN is an international standard, it has not been
widely adopted in the United States and our TMN sales are primarily in Asia.
Over time, we expect that our TMN revenues will be replaced by increased
mediation license revenues.

     Service and Other. Service and other revenues consist primarily of
professional services, maintenance, technical support, non-recurring engineering
projects, training and other revenues. Professional service revenues typically
result from fixed price contracts to fulfill a statement of work for a customer
project, and are usually completed in six months or less. These revenues are
recognized based on the percentage of completion method. Maintenance revenues
are recognized ratably over the term of the maintenance contract. Revenues from
non-recurring engineering projects are also typically recognized on a percentage
of completion basis. Revenues from technical support, consulting and other
categories are usually recognized when the service is performed and no
obligations remain.

     Service and other revenues decreased 41% to $743,000 during the first
quarter of 2002 from $1,262,000 during the first quarter of 2001. The decrease
was the result of lower professional service revenues ($314,000) due to fewer
and smaller projects and lower maintenance revenues due to non-renewal of
maintenance agreements, primarily on legacy products ($205,000).

     Historically, our professional services revenues have been dependent on a
limited number of higher value consulting contracts from both new and existing
customers. While there is price pressure due to the lower volume of available
work and increased competition from lower cost countries, we believe that our
core competencies can be leveraged to increase our revenues in the remainder of
2002. Maintenance revenues should continue at approximately the same level for
the remainder of 2002.

     Cost of Revenues--License. Cost of license revenues consists primarily of
oyalty fees paid for third party software incorporated in our products, the cost
of reproduction of our software and the user documentation, and delivery of
software. Cost of license revenues decreased 77.6% in the first quarter of 2002
to $39,000, or 3.1% of license revenue. The decrease was due primarily to lower
license revenues from software products that included royalty-bearing third
party software components for which we in turn would owe a royalty as well as a
reduction in staff in our manufacturing department. The first quarter of 2001
cost of license revenues was $174,000 or 13.0% of license revenues. For the
remainder of 2002, third party software fees could fluctuate if the product
sales mix changes for existing products and could increase if we sell third
party products on a revenue sharing basis.

     Cost of Revenues--Service. Cost of service revenues consists primarily of
costs associated with performing professional consulting services, software
maintenance and customer technical support such as telephone support, training
services and non-recurring engineering services. In the first quarter of 2001
these costs included approximately $388,000

                                       12

<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

related to TicketExchange, which was formerly known as WebResolve. Cost of
service revenues was $1,039,000 and $1,772,000 for the first quarters of 2002
and 2001, respectively, representing 140% of service revenues in both periods.
The decrease in cost of service revenues in 2002 was the result of staff
reductions in our professional services organization, the repositioning of
TicketExchange from a hosted service to a product license, as well as the
redeployment of certain engineering personnel from our professional service
organization to research and development. We anticipate that our cost of service
revenues for the remainder of 2002 will be marginally lower. However, to the
extent that new consulting service contracts do not materialize, our future
profit margins from services would be adversely impacted.

     Research and Development. The major components of research and development
(R&D) expenses are engineering salaries, employee benefits and associated
overhead, fees to outside contractors, cost of facilities and depreciation of
capital equipment, which consists primarily of computer and test equipment. In
some cases, customers reimburse R&D costs for non-recurring engineering
projects.

     We have historically made significant investments in research and
development. Our R&D expenditures are concentrated in mediation software, which
is designed for the integration of telecom Operation Support Systems and the
underlying network equipment management systems, and in related applications.
Total R&D expenses increased 50% to $1,289,000 in the first quarter of 2002 from
$860,000 in the first quarter of 2001. The increase in R&D expenses was
primarily the result of higher payroll and related facilities costs ($378,000)
and travel expenses ($37,000) due to the addition of the R&D organization from
Trigon Technology Group in May 2001 and the redeployment of certain engineering
personnel from our professional services organization to R&D in the first
quarter of 2002. We expect our R&D costs to be lower for the remainder of 2002
due to reductions in personnel in May 2002. Lower net revenues in future
quarters could force us to reduce expenditures in future periods, which could
result in delays in development of new products and/or product enhancements,
which could further reduce net revenues.

     Sales and Marketing. Sales and marketing expenses consist primarily of
personnel and associated costs related to selling and marketing our products and
services, including trade shows and other promotional costs. We believe that
substantial sales and marketing expenditures are essential to developing
opportunities for revenue growth and sustaining our competitive position. Sales
and marketing expenses in the first quarter of 2002 were $1,273,000, or 28.6%
lower than the $1,782,000 incurred in the first quarter of 2001, primarily as a
result of lower payroll and related facility costs ($299,000), lower third party
commissions ($157,000), and reduced marketing and public relations activity in
the form of trade shows, advertising and consultants ($70,000). As a percentage
of revenues, sales and marketing expenses decreased in the first quarter of 2002
to 63.6% from 68.6% in the first quarter of 2001.

     We expect our sales and marketing expenses to increase in the remainder of
2002 as we expand our sales staff to take advantage of additional market
opportunities, such as new geographical regions where we have not previously
done business and new sales channels. However, lower net revenues in future
quarters could force us to reduce expenditures in future periods, which could
limit our ability to capitalize on market opportunities.

     General and Administrative. General and administrative expenses consist
primarily of salaries, employee benefits and other related expenses of
administrative, executive and financial personnel as well as professional fees
and investor relations costs. General and administrative expenses decreased by
10.4% to $791,000 in the first quarter of 2002 from $883,000 in the first
quarter of 2001 primarily due to lower payroll and facility costs ($93,000). We
anticipate that general and administrative expenses will continue at
approximately the same level for the remainder of 2002.

     Goodwill Amortization. Goodwill amortization was discontinued in the first
quarter of 2002 as a result of our required adoption on January 1, 2002 of SFAS
No. 142. However, we recognized $238,000 of goodwill amortization during the
first quarter of 2001. Had we not recorded goodwill amortization during the
first quarter of 2001, as would have been the case if the provisions of SFAS No.
142 had been in effect, pro forma net loss would have been $2,613,000 and pro
forma basic and diluted net loss per common share would have been $0.09.

     Operating Loss. We incurred losses from operations of $2,429,000 in the
first quarter of 2002 and $3,111,000 in the first quarter of 2001. The reduced
loss from operations was primarily due to reduced operating expenses and costs
of sales as discussed above, although this reduction was partially offset by
lower revenues.

                                       13

<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

     Other Income, Net. In the first quarter of 2002, other income, net
consisted primarily of interest income ($21,000), net sublease income ($25,000)
and a non-cash gain ($160,000) based on the change in the fair value of the
Warrant obligation arising from the issuance of a convertible promissory note
and Warrant as described in Note 2 of the Notes to Consolidated Financial
Statements included in this filing. These items were partially offset by
non-cash interest expense related to the convertible promissory note ($48,000)
and the amortization of an imputed discount related to the convertible
promissory note ($107,000). In the first quarter of 2001, other income, net of
$174,000 consisted primarily of interest income ($143,000) and net sublease
income ($26,000).

     Income Tax (Provision) Benefit. We recorded a provision for income taxes of
$23,000 in the first quarter of 2002 compared to a benefit of $86,000 in the
first quarter of 2001. The provision in 2002 was due primarily to a provision
for foreign taxes. The benefit in 2001 was due primarily to the expiration of
certain tax contingencies ($113,000) but was partially offset by a foreign tax
provision for the current quarter ($38,000). The income tax provisions are
primarily for non-U.S. taxes as we anticipate utilizing net operating losses to
offset any pre-tax income.

Liquidity and Capital Resources

     Cash and cash equivalents at March 31, 2002 increased by 26% to $3,588,000
from $2,851,000 at December 31, 2001. The increase in cash was primarily due to
cash proceeds of $3,395,000 from the issuance of a convertible promissory note
and Warrant to SDS, which was partially offset by cash used in operations.

     Net cash used for operating activities during the first quarter of 2002 was
$2,573,000 compared to $2,663,000 used for operating activities in the first
quarter of 2001. The negative cash flow from operations in the first quarter of
2002 was primarily the result of the net loss ($2,405,000), an increase in
prepaid expenses due to the timing of insurance payments ($490,000), cash
payments for restructuring expenses ($110,000) and a decrease in accrued
liabilities ($283,000). These amounts were partially offset by an increase in
deferred revenue ($480,000) and the non-cash items of interest ($155,000) and
depreciation ($146,000), which in turn were partially offset by a decrease in
the fair value of the Warrant obligation ($160,000).

     Net cash used for investing activities was $81,000 in the first quarter of
2002 compared to $1,927,000 used in the first quarter of 2001. Net cash used for
investing in 2002 resulted from purchases of property and equipment ($22,000)
and an increase in other assets ($59,000).

     Net cash provided by financing activities was $3,395,000 in the first
quarter of 2002 compared to $84,000 provided in the first quarter of 2001. Net
cash provided by financing was derived from the proceeds from the issuance of a
convertible promissory note and Warrant to SDS in January 2002.

     We have reported operating losses from continuing operations for each of
the most recent five fiscal years. For the quarter ended March 31, 2002 we
reported operating losses of $2,429,000 and negative cash flows from operations
of $2,573,000. As of March 31, 2002 we had an accumulated deficit of $85,045,000
and working capital of $1,832,000, which includes cash and cash equivalents
amounting to $3,588,000.

     On February 22, 2002, we filed a Current Report on Form 8-K in connection
with our announcement that we had received notice from Nasdaq that we had not
met, for the last 30 trading days, the minimum bid price of $1.00 and that we
intended to transition to The Nasdaq SmallCap Market. We have applied for
listing with The Nasdaq SmallCap Market and our application is being processed.
There can be no assurance that our application to be listed on The Nasdaq
SmallCap Market will be accepted or, if it is accepted that we will satisfy the
requirements for continued listing on The Nasdaq SmallCap Market. If we are
unsuccessful, our common stock will be delisted. We will not be notified of the
delisting until it becomes effective. If our common stock is delisted from The
Nasdaq National Market and we are unable to gain listing on The Nasdaq SmallCap
Market, we may be unable to have our common stock listed or quoted on any other
organized market. Even if our common stock is quoted or listed on another
organized market, an active trading market may not develop.

     These conditions raise substantial doubt about our ability to continue as a
going concern and, therefore, we may be unable to realize our assets and
discharge our liabilities in the normal course of business. Our plans to
overcome these conditions include increasing revenues, reducing expenses and
raising additional capital. In the first quarter of 2002, we added additional
sales personnel with the intention of increasing revenues. In the fourth quarter
of 2001 we reduced the number of employees by approximately 25% and implemented
several cost reduction initiatives. This reduced our expenses in the first
quarter of 2002 versus the third quarter of 2001 by approximately $800,000. In
addition, we further reduced the number of employees by approximately 15% in May
of 2002. On January 3, 2002, we received proceeds of $3,395,000 from the
issuance of a convertible promissory note and Warrant. Although we plan to
increase revenues and continue reducing expenses, we believe we will require
additional financing early in the third quarter of 2002 in order to fund planned
operations for the remainder of 2002. We continue to seek short term financing
and a longer term financing solution. We cannot assure that we will be able to
increase our revenues, or that our expense reduction programs will be
successful, or that additional financing will be available to us, or, if
available, that the terms will be satisfactory to us. If we are not successful
in reducing our expenses or raising additional capital, or if we do not achieve
revenues at levels sufficient to generate operating income, we may not be able
to continue as a going concern. Our financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or to amounts and classification of liabilities that may be necessary
should we be unable to continue as a going concern.

                                       14

<PAGE>

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)

     At March 31, 2002 our long-term liquidity needs consisted principally of
operating lease commitments related to facilities and office equipment and
obligations related to the $3.5 million convertible promissory note as disclosed
in Note 2 of the accompanying Notes to Consolidated Financial Statements.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     (a)   Quantitative Information About Market Risk.

     Vertel's exposure to market risk for changes in interest rates relates
primarily to our investment portfolio. We maintain an investment policy that
ensures the safety and preservation of our invested funds by limiting default
risk, market risk and investment risk. As of March 31, 2002, we had $3,588,000
of cash and cash equivalents with a weighted average variable rate of 1.63%, and
no short-term investments. As of March 31, 2001, we had $6,329,000 of cash and
cash equivalents and $3,000,000 of short-term investments with a weighted
average variable rate of 4.81% and 5.09%, respectively.

     At March 31, 2002 we had long-term debt of $826,000 (see Note 2 of the
accompanying Notes to Consolidated Financial Statements.) related to a
promissory note payable to SDS Merchant Fund L.P. and no short-term debt. At
March 31, 2001, we had no short or long-term debt.

     (b)   Qualitative Information About Market Risk

     While our consolidated financial statements are prepared in United States
Dollars, a portion of our worldwide operations have a functional currency other
than the United States Dollar. In particular, we maintain operations in Germany,
Korea, the Netherlands, and Poland, where the functional currencies are: Euro,
Won, Euro, and Zloty, respectively. Most of our revenues are denominated in the
United States Dollar. Fluctuations in exchange rates may have a material adverse
effect on our results of operations and could also result in exchange losses.
The impact of future exchange rate fluctuations cannot be predicted adequately.
To date, exchange fluctuations have not had a material impact on our earnings
and we have not sought to hedge the risks associated with fluctuations in
exchange rates, but may undertake such transactions in the future. We do not
have a policy relating to hedging. There can be no assurance that any hedging
techniques implemented by us would be successful or that our results of
operations will not be materially adversely affected by exchange rate
fluctuations. Our foreign assets are not material.

     We mitigate default and interest rate risk by investing in high credit
quality securities and by constantly positioning our portfolio to respond
appropriately to a significant reduction in a credit rating of any investment
issuer or guarantor and by placing our portfolio under the management of
professional money managers who invest within specified parameters established
by the Board of Directors. The portfolio includes only marketable securities
with active secondary or resale markets to ensure portfolio liquidity and
maintains a prudent amount of diversification.

PART II.  OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

          Neither the Company nor any of its subsidiaries is a party to, nor is
     their property the subject of, any material pending legal proceeding. The
     Company may, from time to time, become a party to various legal proceedings
     arising in the normal course of its business.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

          Not applicable.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

          Not applicable.

                                       15

<PAGE>

PART II.  OTHER INFORMATION (continued)

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          Not applicable.

ITEM 5.   OTHER INFORMATION

          None.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(a)  EXHIBITS

     The exhibits required to be furnished are listed in the Exhibit List
     following this Report


(b)  REPORTS ON FORM 8-K

     On January 9, 2002, we filed a Current Report on Form 8-K in connection
     with our announcement of the completion of the sale of a $3,500,000
     convertible promissory note to SDS Merchant Fund L.P.

     On February 8 2002, we filed a Current Report on Form 8-K in connection
     with reporting our year-end and fourth quarter 2001 financial results.

     On February 22, 2002, we filed a Current Report on Form 8-K in connection
     with our announcement that we had received notice from The Nasdaq Stock
     Market, Inc. that we had not met, for the last 30 trading days, the minimum
     bid price of $1.00 and that we intended to transition to The Nasdaq
     SmallCap market by May 15, 2002.

                                       16

<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                               VERTEL CORPORATION

                               (Registrant)

Date: May 14, 2002             /s/   CRAIG S. SCOTT
                               -------------------------------------------
                               Craig S. Scott
                               Vice President, Finance and Administration,
                               Chief Financial Officer and Secretary
                               (Principal Financial Officer and Principal
                               Accounting Officer)

                                       17

<PAGE>

                                  EXHIBIT INDEX

Number                                 Description
------                                 -----------

2.1       Agreement and Plan of Reorganization and Liquidation, dated May 30,
           2001, by and between Vertel Corporation and Trigon Technology Group,
           Inc. (incorporated by reference to Exhibit 2.1 of the Registrant's
           Current Report on Form 8-K dated May 30, 2001, Commission File No.
           000-19640).

3.1       Amended and Restated Articles of Incorporation of the Registrant
(and 4.1)  (incorporated by reference to Exhibit 3.3 of the Registrant's
           Quarterly Report on Form 10-Q for the quarter ended September 30,
           2000, Commission File No. 000-19640).

3.2       Bylaws of the Registrant, as amended to date (incorporated by
(and 4.2)  reference to Exhibit 3.4 of the Registrant's Annual Report on Form
           10-K for the year ended December 27, 1997, Commission File No.
           000-19640).

3.3       Certificate of amendment to Registrant's Articles of Incorporation, as
(and 4.1)  filed with the California Secretary of State on April 7, 1998,
           changing the Company's name to Vertel Corporation (incorporated by
           reference to Exhibit 3.5 of the Registrant's Current Report on Form
           8-K dated April 7, 1998, Commission File No. 000-19640).

3.4       Preferred Shares Rights Agreement dated as of April 29, 1997 with
(and 4.3)  Chase Mellon Shareholder Services, LLC (incorporated by reference to
           Exhibit 1 of the Registrant's Registration Statement on Form 8-A
           filed on April 30, 1997, Commission File No. 000-19640).

4.4       Note and Warrant Purchase Agreement dated August 31, 2001 by and
           between Vertel Corporation and SDS Merchant Fund, L.P. (incorporated
           by reference to Exhibit 4.1 of the Registrant's Current Report on
           Form 8-K dated August 31, 2001, Commission File No. 000-19640).

4.5       Form of $3,500,000 Convertible Promissory Note dated August 31, 2001
           by and between SDS Merchant Fund, L.P. (incorporated by reference to
           Exhibit 4.2 of the Registrant's Current Report on Form 8-K dated
           August 31, 2001, Commission File No. 000-19640).

4.6       Warrant dated August 31, 2001 by and between Vertel Corporation and
           SDS Merchant Fund, L.P. (incorporated by reference to Exhibit 4.3 of
           the Registrant's Current Report on Form 8-K dated August 31, 2001,
           Commission File No. 000-19640).

10.1      1991 Employee Stock Purchase Plan (incorporated by reference to
           Exhibit 10.5 of the Registrant's Quarterly Report on Form 10-Q for
           the quarter ended September 26, 1992, Commission File No. 000-19640).

10.2      Form of subscription agreement under 1991 Employee Stock Purchase Plan
           (incorporated by reference to Exhibit 10.5 of the Registrant's
           Quarterly Report on Form 10-Q for the quarter ended September 26,
           1992, Commission File No. 000-19640).

10.3      Amended 1996 Directors' Stock Option Plan (incorporated by reference
           to Exhibit 10.75 of the Registrant's Annual Report on Form 10-K for
           the year ended December 31, 1999, Commission File No. 000-19640).

10.4      Form of Option Agreement under 1996 Directors' Stock Option Plan
           (incorporated by reference to Exhibit 10.75 of the Registrant's
           Annual Report on Form 10-K for the year ended December 31, 1999,
           Commission File No. 000-19640).

10.5      Amended 1998 Stock Option Plan (incorporated by reference to Exhibit
           10.76 of the Registrant's Annual Report on Form 10-K for the year
           ended December 31, 1999, Commission File No. 000-19640).

                                       18

<PAGE>

Number                                    Description

10.6      Form of Option Agreement under 1998 Stock Option Plan (incorporated by
           reference to Exhibit 10.76 of the Registrant's Annual Report on
           Form 10-K for the year ended December 31, 1999, Commission File No.
           000-19640).

10.7      Vertel Corporation 2000 Stock Option Plan (incorporated by reference
           to Exhibit 10.81 of the Registrant's Quarterly Report on Form 10-Q
           for the quarter ended June 30, 2000, Commission File No. 000-19640).

10.8      2001 Nonqualified Stock Option Plan (incorporated by reference to
           Exhibit 5.1 of the Registrant's Current Report on Form 8-K dated
           May 30, 2001, Commission File No. 000-19640).

10.9      Form of Notice of Stock Option (incorporated by reference to Exhibit
           5.2 of the Registrant's Current Report on Form 8-K dated May 30,
           2001, Commission File No. 000-19640).

10.10     Grant and Form of Stock Option Agreement with attached Notice of
           Exercise (incorporated by reference to Exhibit 5.3 of the
           Registrant's Current Report on Form 8-K dated May 30, 2001,
           Commission File No. 000-19640).

10.11     Lease Agreement between the Registrant and Moorpark Associates, a
           California Limited Partnership, dated February 5, 1993
           (incorporated by reference to Exhibit 10.22 of the Registrant's
           Annual Report on Form 10-K for the year ended January 2, 1993,
           Commission File No. 000-19640).

10.12     Lease Agreement between the Registrant and Nomura-Warner Center
           Associates, L.P., dated November 26, 1996 (incorporated by reference
           to Exhibit 10.48 of the Registrant's Annual Report on Form 10-K for
           the year ended December 28, 1996, Commission File No. 000-19640).

10.13     Form of Retention Agreement between the Company and each of its
           officers (incorporated by reference to Exhibit 10.68 of the
           Registrant's Annual Report on Form 10-K for the year ended December
           31, 1998, Commission File No. 000-19640).

10.14     Employment Agreement between the Company and Tonia G. Graham dated
           July 5, 2000 (incorporated by reference to Exhibit 10.82 of the
           Registrant's Annual Report on Form 10-K for the year ended December
           31, 2000, Commission File No. 000-19640).

10.15     Employment Agreement between the Company and Craig S. Scott dated
           December 1, 2000 (incorporated by reference to Exhibit 10.83 of
           the Registrant's Annual Report on Form 10-K for the year ended
           December 31, 2000, Commission File No. 000-19640).

                                       19

<PAGE>

Number                               Description

10.16     Employment Agreement between the Company and Alex Kuo dated May 30,
           2001 (incorporated by reference to Exhibit 10.85 of the Registrant's
           Quarterly Report on Form 10-Q for the quarter ended September 30,
           2001, Commission File No. 000-19640).

10.17     Retention and Severance Agreement between the Company and Alex Kuo
           dated May 30, 2001 (incorporated by reference to Exhibit 10.86 of
           the Registrant's Quarterly Report on Form 10-Q for the quarter
           ended September 30, 2001, Commission File No. 000-19640).

10.18     Non-Competition and Non-Disclosure Agreement between the Company
           and Alex Kuo dated May 30, 2001 (incorporated by reference to
           Exhibit 10.87 of the Registrant's Quarterly Report on Form 10-Q
           for the quarter ended September 30, 2001, Commission File No.
           000-19640).

10.19     Form of Indemnification Agreement with the Company's officers and
           directors (incorporated by reference to Exhibit 10.22 of the
           Registrant's Annual Report on Form 10-K for the year ended December
           31, 2001, Commission File No. 000-19640).

10.20     Employment Agreement between the Company and Marc E. Maassen dated
           October 11, 2001 (filed herewith).

10.21     Employment Agreement between the Company and Stephen J. McDaniel dated
           January 1, 2002 (filed herewith).

10.22     Employment Agreement between the Company and E. Carey Walters dated
           January 1, 2002 (filed herewith).

10.23     Employment Agreement between the Company and David J. Baumgarten dated
           February 1, 2002 (filed herewith).

11.1      Statement re: Computation of per share earnings (filed herewith).

                                       20